Kimbell Royalty Partners, LP — 2022 Form 10-K
Reporting period: Fiscal year ended December 31, 2022; filed February 23, 2023. This is an annual filing, not a standalone fourth-quarter report. Kimbell owns U.S. mineral and royalty interests and generally does not bear drilling, operating, or abandonment costs. Figures below are in U.S. dollars.
Key financial results
| Metric | 2022 | 2021 | Change / context |
|---|---|---|---|
| Oil, natural gas and NGL revenues | $282.0 million | $175.1 million | Up 61.0% |
| Total revenues, including derivative losses | $248.1 million | $135.6 million | Up 82.9% |
| Operating income | $136.9 million | $49.3 million | Up $87.6 million |
| Net income | $130.8 million | $42.4 million | Partnership consolidated results |
| Net income attributable to KRP common units | $111.9 million | $22.6 million | Basic EPS $1.75; diluted EPS $1.72 |
| Net cash from operating activities | $166.6 million | $91.4 million | Up $75.2 million |
| Adjusted EBITDA attributable to KRP | $164.0 million | $84.3 million | Non-GAAP measure |
| Cash available for distribution on common units | $151.3 million | $75.5 million | Non-GAAP measure |
Reported operating margin was approximately 55.2% of total revenues in 2022, versus 36.4% in 2021. This comparison includes the effect of commodity derivatives in reported revenue. KRP recorded no property impairment in 2022 or 2021; it recorded a $251.6 million impairment in 2020.
Production, reserves and financial position
- Production averaged 15,025 Boe/d, up 4.7% from 14,354 Boe/d in 2021. Year-end proved developed producing reserves were 46.5 million Boe, up from 45.5 million Boe; all reported proved reserves were PDP.
- Average realized prices increased: oil to $91.74/Bbl from $64.86; natural gas to $6.04/Mcf from $3.51; and NGLs to $38.19/Bbl from $29.33. Production mix of oil, gas and NGL revenue was 46%, 44% and 10%, respectively.
- Operating cash flow was $166.6 million; investing cash use was $374.7 million and financing cash provided was $226.1 million. Investing outflows included $236.9 million placed in TGR’s trust account and approximately $141.3 million for acquisitions, primarily Hatch. TGR trust assets are not available for KRP’s general use.
- At December 31, cash and cash equivalents were $24.6 million at KRP (plus $0.4 million held by consolidated entities); revolving-credit borrowings were $233.0 million, with $117.0 million of stated available capacity under the $350 million borrowing base. KRP reported covenant compliance. The facility is secured by substantially all of KRP’s assets and has financial covenants, including leverage and current-ratio tests.
- Interest expense rose to $13.8 million from $9.2 million; the weighted-average borrowing rate was 5.28% for 2022. The interest-rate swap was terminated during 2022, generating a reported $6.4 million gain.
- The Board declared a $0.48-per-common-unit distribution for Q4 2022, payable March 16, 2023. The Board allocated approximately $13.1 million of Q4 available cash to debt repayment; it expected to continue allocating some future cash to repayment. Distributions are not guaranteed and there is no minimum quarterly distribution.
Material changes and unusual items
- Hatch acquisition closed December 15, 2022 for approximately $150.4 million cash plus 7.27 million OpCo common units and an equal number of Class B units. The cash portion was funded with revolver borrowings. Hatch added Permian interests estimated at about 889 net royalty acres across approximately 230,000 gross acres.
- KRP completed a November 2022 public offering of 6.9 million common units for approximately $117.0 million net proceeds, used to purchase OpCo units and repay approximately $116.0 million of revolver debt. This increased the common-unit count and diluted existing holders.
- Revenue growth reflected higher commodity prices and, to a lesser extent, higher production. The Cornerstone acquisition contributed a full year of production in 2022 versus roughly three months in 2021; Hatch contributed only a short period in 2022.
- Commodity derivative losses were $37.0 million in 2022, compared with $42.8 million in 2021. The 2022 amount included $53.0 million of settlement losses partly offset by $16.0 million of mark-to-market gains. Economic hedges covered approximately 21% of daily oil and gas production at year-end; hedge accounting was not applied.
- KRP consolidated TGR, its SPAC subsidiary. TGR’s $236.9 million redeemable public-share interest is shown as mezzanine equity; trust funds are restricted for TGR’s business combination or redemption obligations. TGR’s stated deadline was May 8, 2023, with sponsor options for two three-month extensions.
Outlook, risks and contingencies
- The filing provides no formal financial or production guidance. Management said U.S. rig activity had recovered, but did not expect significant U.S. oil production growth in 2023, citing depleted drilled-but-uncompleted well inventories and inflation in drilling, completion and labor costs.
- Results and distributions remain exposed to volatile oil, gas and NGL prices, operator drilling and production decisions, transport capacity, and acquisition execution. KRP relies on unaffiliated operators and does not control their activity.
- Management highlights reserve-replacement and depletion risk: PDP reserves had an estimated initial five-year average annual decline rate of 12.4%. KRP does not intend to retain operating cash for replacement capital expenditures, relying instead on operator development and acquisitions.
- Other risks include floating-rate debt, borrowing-base redeterminations, derivative counterparty and hedge risk, environmental and climate regulation, hydraulic-fracturing restrictions, title or payment-suspense issues, and dependence on affiliated service providers and sponsors. Related-party arrangements and sponsor conflicts are disclosed.
- Management reported no material legal, environmental or other contingencies known at year-end; routine legal claims were not expected to materially affect results. The independent auditor issued unqualified opinions on the financial statements and internal controls. Internal-control testing excluded Hatch, which represented 24% of reported total assets and 1% of 2022 revenue.
Important facts for investors to verify
- How much of 2022 earnings and cash generation is repeatable at lower commodity prices, after derivative settlements and interest costs?
- Whether operator activity can offset the disclosed 12.4% PDP decline rate, and how reserve revisions and future acquisition needs affect distributions.
- Current debt, borrowing-base availability, interest rates and covenant headroom after the Hatch acquisition and subsequent debt repayments.
- The dilution and distribution implications of the 2022 equity issuance, Hatch-related Class B/OpCo units, and future unit exchanges or issuances.
- TGR’s business-combination outcome and the availability or redemption treatment of its trust assets; those assets are not ordinary KRP liquidity.
- The filing’s Q4 distribution is $0.48 per common unit; confirm the actual payment and subsequent distribution decisions, since distributions may vary or cease.